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Steve Rossi Featured in RBJ Article

January 11, 2019
Stephen A. Rossi - Senior Vice President, Senior Equity Strategist, MBA, CFA®, CFP®, in our Wealth Management group, was featured in a Rochester Business Journal article that discusses anxiety amongst investors wondering if a recession may occur in the near future. Read the full article below.

S Rossi 2014
Investment executives say recession anxiety is currently overblown
Stick to your plan, they say, adding economy still strong

By: Rochester Business Journal Staff - Matthew Reitz

Published: January 10, 2019

The United States economy has been in a period of growth for nearly a decade and markets have largely been on the rise in recent years, but with an economic downturn almost certain to come eventually some investors are wondering what to do to insulate themselves from the impact of a potential recession.

The U.S. economy has been expanding for the past nine years, but there are signs that growth is starting to slow down. Though a recession is almost certain to take hold at some point, local experts say economic indicators don’t suggest a significant downturn is on the horizon yet and that the best way to weather an economic downturn is to have a financial plan and stick to it.

Bill Shaheen, president and CEO of Rochester-based wealth management firm Whitney and Co., says “the key to investing is to maintain a long-term investment strategy,” and noted each investor must review their financial needs, risk tolerance, long-term goals and objectives before determining an asset allocation that aligns with those specifications.

“In today’s investing world there is a lot of noise that can cause investors to react emotionally,” he said. “Currently we are dealing with trade tariffs, looming fears of recession, huge market volatility (daily ups and downs of more than 1,000 points), Brexit, the Fed increasing interest rates, daily tweets from Washington and the government shutdown. Emotions are running high. The key is not to react to these very human emotions, but instead to have a plan and stick to it long term.”

Concerns of a recession or downturn in the markets can cause investors to reexamine their asset allocation — whether it be stocks, bonds or other assets — to determine if it still aligns with their specific goals and risk tolerance, Shaheen said, but investors should continue to look “long term at their investment strategies rather than react emotionally short term” to market downturns or recession threats.

Experts say individual investors shouldn’t try to predict a downturn before it happens because the impact of being wrong can far exceed any benefit of forecasting correctly.

“It’s very difficult to be 100 percent proactive and to see some of these things coming at times,” says Stephen Rossi, a senior vice president and equity strategist at Canandaigua National Bank & Trust. “They tend to sneak up when nobody is expecting it.”

Rossi said it’s difficult, even for economists, to see an economic downturn coming, and attempts to minimize the impact of a recession are “kind of akin to market timing.”

Jason Garlock, chief investment officer at Rochester-based Cobblestone Capital Advisors, says the risks of trying to time the market and avoid an economic downturn far outweigh the rewards, and if you’re wrong and markets continue to go up it’s difficult to make up for the lost gains.

“The idea that anyone, professional or otherwise, can consistently time when to not only get out of the market in advance of a recession or a bear market, but also know exactly when to get back into it I think is very dangerous,” Garlock said.

If a recession were to take hold, investors are discouraged from making kneejerk reactions and to stick to their long-term planning.

“Doing something is likely a bigger risk than not doing anything at all if you have an appropriate allocation to begin with,” Garlock said.

Shaheen says there’s historical data to back up those claims, pointing to a study that showed average annual returns over the last 20 years in the S&P 500 were more than 7 percent, but the average individual investor achieved a return of slightly more than 2.5 percent annually.

“The reason the individual investor is so low is because they let emotions take over the investment process rather than sticking to their long-term strategy and asset allocation,” Shaheen said, pointing to the importance of having an investment plan to start with.

A potential recession would impact investors of all ages and stages of saving, but experts say the most important piece of any investment strategy is having a long-term plan and following it when market and economic conditions are both favorable and unfavorable.

“For an aggressive investor downturns can create good buying opportunities,” Shaheen said. “But for a conservative, retired investor changing asset allocation to reduce risk may be the best approach to weather out a downturn or recession.”

For younger individuals who may be starting to invest for their retirement, Rossi says economic downturns can provide a “really nice entry point” with prices that have fallen. He said there’s more opportunity for those just starting to save in a downturn than there is potential detriment.

“We know that most downturns don’t last more than a couple years typically and starting to save in this environment can be great because you’re essentially buying low and are able to catch that leveraged position and benefit from it when the market does ultimately recover,” Rossi said.

Garlock said a recession could, however, have a negative psychological impact on young individuals just getting started with their retirement planning. He said many young investors were “kind of scarred by what happened in 2008-09 and have never really seen what a normal improvement in the economy can do to their savings rate.”

Individuals who may be in their 40s and 50s and still a decade or more from retirement should be making decisions in relation to their own financial situation and tolerance for risk, Rossi said, and it all should go back to long-term planning.

Rossi said individuals in their 40s and 50s still have a significant remaining investment horizon, and though rebalancing their portfolios might make sense, a recession isn’t time to panic. A recession is not the time, Rossi said, to make big bets that could jeopardize an individuals’ long-term financial well-being.

In many ways, Garlock said if individuals aren’t on the precipice of retiring a recession isn’t necessarily an insurmountable obstacle.

“If you’re not drawing on your assets and you’re still in net accumulation mode it certainly doesn’t hurt that you’re buying them low,” he said. “When it really starts to matter is when you move from that period of saving money into spending money.”

In the years leading up to taking that last paycheck, Garlock said investors and their advisors should ensure there are not only sufficient assets to meet retirement goals but also to weather an economic downturn. Economic downturns certainly impact individuals in retirement, Garlock said, so people should plan for it as far in advance as possible.

“Even though I don’t think it’s coming in the next year, it’s going to happen eventually,” Garlock said of a recession. “So that’s kind of always the answer — to make sure when you’re thinking about retiring that you build in some flexibility into your plan.”

Rossi said one thing to always keep in mind is an investor’s need for cash, because nobody wants to be forced to sell out of the market when things are down 15-20 percent in order to acquire spending money.

“Being forced to sell securities to meet current cash needs during a downturn can be really detrimental,” Rossi said, noting advisors should recommend some cash reserve or allocation to short-term, highly liquid investments to cover living expenses for six to 30 months.

Though there are some economic signs consistent with a slowing economy, Garlock says there’s no substantial signs that a recession is near. Garlock said many people have a pessimistic view of the economy because growth has been a little slower than recent years, but noted the national economy is still pretty strong.

“We don’t see too awful many of them right now,” Garlock said of signs that the economy is heading into recession or a meaningful decline. “We’re not seeing the type of things we would see at the very end of an economic recovery that leads us to believe a recession is imminent.”

Rossi echoed that belief, saying economic signs lead him to believe a recession is “another year or two out at the earliest based on the strength of the economy.”

“I’d say don’t get too wrapped up in the news or the fears of the day and focus more on the longer-term trends and the fundamentals, which are still — in my opinion — very good right now,” Rossi said.

Matthew Reitz is a Rochester-area freelance writer.

To view the full RBJ article, click here.